Acadian Timber Corp.

Acadian Timber Corp. (TSX: ADN) is a Canada-based supplier of primary forest products in Eastern Canada and the Northeastern United States. The company's operating segments include NB Timberlands and Maine Timberlands. It generates maximum revenue from the NB Timberlands segment. 

• Impressive dividend yield: The company has a solid track record of consistent dividend payment, backed by stable cash flows. Notably, the stock of ADN ~6.267% on an annualized basis, which looks impressive considering the persisting interest rate scenario.

Five-year dividend yield, Analysis by Kalkine Group

• Improved cash flows: The company reported a higher cash from operation of CAD 14.605 million in 9MFY21, as compared to CAD 13.305 million in pcp, supported by higher profitability. A higher cash from operations indicates improved liquidity position. Notably, free cash flow, during the period stood at CAD 11.450 million, significantly higher than CAD 9.506 million in pcp.

• Positive outlook: The management guided that, the demand for the hardwood sawlogs is likely to stay strong for the rest of FY21 supported by improved demand dynamics from industrial segment. Softwood lumber demand are expected to remain steady supported by positive outlook for US home construction and improvements. Additionally, demand for biomass related to the company’s New Brunswick operation is expected to remain stable for FY21 and for FY22, supported by steady demand from the regional market.

Q3FY21 Financial Highlights

• ADN announced its quarterly result, wherein the company posted its Sales of CAD 22.657 million, as compared to CAD 23.236 million in pcp. The marginal slide was primarily due lower revenue from the Hardwood segment.
• The quarter was marked by lower cost of sales, coupled with a slide in the Selling, administration and other expense. Operating earnings improved to CAD 4.754 million, from CAD 4.445 million in pcp.
• Net income stood at CAD 87 million, as compared to CAD 5.248 million in pcp. The above was primarily due to an unrealized loss of CAD 3.088 million, as compared to a gain of CAD 2.240 million in pcp.    

Risks: The demand of its product is related to the US housing construction and a slide in the above activity would likely to dampen the company sales volumes. 

Valuation Methodology (Illustrative): Price to Cash flow

Stock Recommendation:

For 9MFY21, the company reported Adjusted EBITDA of CAD 15.838 million in 9MFY21, higher than CAD 14.197 million in the previous corresponding period. Notably, the company reported adjusted EBITDA margin of 24% in 9MFY21, higher than 21% in pcp, which seems encouraging considering the ongoing rise in the input costs witnessed by the industry. We have valued the stock using the Price to CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Canfor Pulp Products Inc, Resolute Forest Products Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of ADN at the closing price of CAD 18.51 on November 02, 2021.

One-Year Technical Price Chart (as on November 02, 2021). Source: Kalkine, Analysis by Kalkine Group 

*The reference data in this report has been partly sourced from REFINITIV.

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